India's Capex Growth Set to Cool Amid Peak Government Spending

India's capital expenditure, which has grown robustly in recent years, is expected to slow to single digits as government spending peaks. A report by SBI Mutual Fund suggests that while government-led capex stabilizes, corporate spending remains promising, signaling a shift in the investment landscape.

India's capital expenditure growth is predicted to moderate to single digits over the next two years following a period of robust expansion, a recent report from SBI Mutual Fund reveals. The report noted that government capital expenditure had grown at an impressive 30% compound annual growth rate (CAGR) during the fiscal years 2022-2024, significantly enhancing the capex-to-GDP ratio.

The document stated that given the elevated 15% CAGR base over the past four years, corporate capex—encompassing both public and private sectors—is likely to decelerate to mid-single digits in fiscal years 2026 and 2027. Furthermore, budgetary support had successfully increased government capex from around 4% of GDP to approximately 6% by the end of fiscal year 2024.

As the high base effect takes hold, overall corporate capex is projected to grow at a mid-single-digit rate. The report observed that the government's push for capex may have reached its peak. Henceforth, budgetary capital expenditure is anticipated to align with India's nominal GDP growth. Additionally, state governments might trim their capex to allocate funds for welfare schemes, potentially further moderating overall growth. Despite this, the corporate order pipeline remains solid, preserving a positive outlook even as government-led capex stabilizes. The Reserve Bank of India suggested optimism for private corporate capex intentions, contributing to a broader policy shift as corporate spending looks set to play a more critical role in India's investment landscape as government-led capex eases.

(With inputs from agencies.)